Binyamin Appelbaum on the Economists' Hour

Episode Summary

Executive Summary: Russ Roberts and Binyamin Applebaum debate the legacy of Milton Friedman and the economists’ postwar “revolution.” Applebaum argues that economists successfully pushed markets, deregulation, and inflation fighting too far, worsening growth, inequality, and democratic cohesion; Roberts counters that many gains were real, that some policy changes improved consumer welfare, and that outcomes depend on broader social, political, and institutional forces.

Main Topics: Milton Friedman and the economists’ revolution (Priority: 5/5): Applebaum frames Friedman and allies as driving a major shift from active government management toward market-oriented policy across macroeconomics, regulation, taxation, and welfare. Regulation: price controls vs. consumer/health-safety rules (Priority: 5/5): The conversation distinguishes between discredited mid-century price and quantity controls and the later expansion of health, safety, and environmental regulation. Growth, investment, and long-run economic performance (Priority: 4/5): Applebaum links slower growth to reduced public investment in education, research, infrastructure, and stabilization policy; Roberts argues the causes are more complex and include health care and family structure. Inequality, distribution, and democracy (Priority: 5/5): Applebaum argues economists helped shift policy away from distribution toward efficiency, contributing to greater inequality and weakening shared civic purpose. Monetary policy, inflation targeting, and the Fed (Priority: 5/5): A major thread covers Friedman’s influence on monetary policy, the rise of inflation targeting, Volcker’s disinflation, and the tradeoff between inflation control and unemployment. Consumer welfare vs. producer/community welfare (Priority: 4/5): The hosts debate whether policy should prioritize cheaper goods for consumers or also protect workers, communities, and local industrial ecosystems. Antitrust, concentration, and innovation (Priority: 4/5): They discuss how modern antitrust doctrine lowered consumer prices in some sectors but may have reduced competition, wages, and new firm creation.

Key Arguments: Applebaum argues the late-1960s/1970s policy shift toward markets was a real revolution that changed multiple policy domains, not just a few isolated reforms. He contends the revolution went too far: less regulation, weaker public investment, and stronger inflation-fighting contributed to slower growth, more inequality, and strain on democracy. Roberts challenges the “revolution” framing by noting Friedman himself was disappointed with limited policy wins, even though many ideas only partially triumphed. Applebaum responds that Friedman’s influence was broader than his personal wish list; his ideas reshaped monetary policy, deregulation, tax thinking, and the policy agenda overall. On regulation, Applebaum says the biggest victory was the collapse of price-setting and quantity controls, while new health/safety/environmental regulation later replaced them. Roberts agrees that price controls largely failed but notes that some deregulation clearly benefited consumers and that modern regulation is uneven across sectors. Applebaum argues slower growth reflects underinvestment in education, basic research, infrastructure, and innovation-supporting institutions, plus the long-run drag of inequality. Roberts disputes the causal story, pointing instead to health-care distortions, family change, housing restrictions, and macro policy failures as major growth factors. On inequality, Applebaum says policymakers explicitly de-emphasized redistribution in favor of efficiency, allowing inequality to rise. On monetary policy, Applebaum says Friedman helped shift central banks toward inflation targeting, often tolerating unnecessary unemployment to suppress inflation. Roberts agrees that inflation became the overriding focus at times but argues that the Fed still considered unemployment and that anti-inflation credibility mattered because of historical memories of depression and inflation. On antitrust, Applebaum says consumer prices often fell, but concentration reduced worker leverage, innovation pressure, and new business formation. Roberts notes that some concentrated industries, especially tech and pharma, can still innovate intensely through acquisition-based business models. Both agree that economists have been unusually powerful in shaping policy, but Roberts warns that economic analysis often privileges measurable efficiency over harder-to-measure values like dignity, meaning, and community.

Data Points: Time horizon of the book: last 50 or so years - Applebaum’s historical scope covers postwar economics policy through the late 2010s. Podcast date: November 5, 2019 - Opening introduction to the episode. Growth trend period: 1960s through the aughts - Applebaum says average U.S. growth declined in every decade across this span. Inflation target example: 1% better than 2% and 0% better than 1% - Applebaum says Greenspan publicly favored lower inflation even without evidence for these exact thresholds. Fed unemployment effect estimate: about 1 percentage point higher - Applebaum cites calculations that unemployment during the Greenspan era was roughly a point higher than necessary. Homelessness example cities: Los Angeles, San Francisco, New York - Applebaum highlights growing urban homelessness, especially among employed people who cannot afford housing. Employment examples among homeless: school teachers, Walmart employees, Disneyland employees - Used to argue that contemporary homelessness includes economically housed-out workers, not only the mentally ill. Policy period cited for deregulation: late 1970s - Carter-era deregulation of airlines and trucking is treated as a turning point. Stimulus package size: $787 billion - Roberts references Obama-era fiscal stimulus as evidence the Fed/fiscal tools did not disappear. Company example: two billion dollars - Roberts cites Fitbit’s sale price as an example of tech acquisition incentives. Airline industry concentration: 4 airlines - Roberts notes that U.S. airline consolidation left four major carriers. Huffy factory employment: about a thousand people - Roberts cites the Salina, Ohio bicycle plant as a case of industrial displacement.

Pivotal Quotes: "government is overly involved in the economy. It has its hand on too many of the levers." — Binyamin Applebaum: Summarizing the Friedman-era market critique that drove policy change. "I think of this as the story of a revolution that really gets going in the late 1960s and the early 1970s" — Binyamin Applebaum: Applebaum defines the central historical thesis of his book. "we need government regulation to stabilize growth. We need government investment to plant the seeds for growth." — Binyamin Applebaum: Applebaum’s core rebuttal to laissez-faire economics on long-run growth.

Implications: The episode suggests policy debates should move beyond consumer prices and efficiency to include growth quality, distribution, housing, competition, and democratic cohesion. It also warns that economist-driven reforms can succeed technically while still producing social costs.